Gold prices fell sharply again just prior to European markets opening, in aggressive selling which saw gold quickly fall from $1,355/oz to $1,343/oz at 0754 GMT. Support at $1,360/oz was breached overnight and gold should now test support at $1,320/oz.

Gold prices are now at the lowest in almost three weeks after Obama asked Congress to delay a vote on U.S. military action against Syria and hope grew that a U.S. strike on Syria could be avoided diminishing demand for safe haven gold in the short term.

Obama said yesterday he would prefer a peaceful solution to the Syrian conflict and that he saw “encouraging signs” of diplomacy ending the confrontation. In a New York Times opinion piece, Russia’s Putin called on the U.S. to avoid the use of force and “return to the path of civilised diplomatic and political settlement.”

Putin’s claim that the Syrian rebels, and not the Assad government, were behind a recent alleged chemical attack is likely to further badly damage relations between the U.S. and Russia and heighten geopolitical tensions in the coming months which will support gold.

Gold jumped 6.3% last month partly due to concerns that political tension in the Middle East could lead to surging oil prices, hurting fragile global economies and stoking inflation.

Continued speculation that the U.S. Federal Reserve will commit to reducing stimulus next week is also leading to weakness. However, the possible slight reduction in the massive $85 billion a month bond buying programme will only be short term negative for gold. Ultra loose monetary policies with interest rates close to zero are set to continue for the foreseeable future.

Respected investment managers, Grant Williams and John Hathaway, told King World News overnight that customers of the GLD ETF are being told that they cannot have their gold.

The GLD ETF or ‘SPDR Gold Shares’ is the largest gold ETF in the world.

Grant Williams, one of the most highly respected fund managers in Singapore and a perceptive analyst of the gold market said that custodians of the GLD ETF have refused to give people physical gold in exchange for the shares as investors are entitled too.

Williams warned that the massive and escalating paper claims on physical gold at COMEX warehouses will create an explosion in the price of gold. Paper claims on gold are now at 55 to 1 meaning that there are contracts worth 55 ounces for every one ounce of actual physical gold in the COMEX warehouses.

“We’ve seen the gold being drained out of the COMEX almost non-stop this year, certainly since the Bundesbank repatriation request. It hasn’t had any noticeable effect just yet, but it really is a spring that is continually being coiled, and at some point it is going to snap back. And when it does, with all of these disparate claims on each ounce of gold, there is going to be some fireworks, no doubt about it,”Williams said.

“There are a lot of people that aren’t going to get their gold” said Williams.

Since the creation of the gold ETFs we have continually warned in our market updates and in our gold guides about the unappreciated counterparty risk in these new financial instruments.

There has been significant skepticism regarding whether many gold and silver ETFs are backing their ETF holdings ounce for ounce. Much of that skepticism has abated, however there is a potentially equally important issue which should be considered.

Gold ETFs are riskier than most forms of allocated gold ownership. This is due to the very high level of indemnifications in the prospectus and in the terms and conditions of many ETFs.

There is also the important fact that you are an unsecured creditor of a large number of banks who are custodians and sub custodians of your bullion holdings.

In the event of one of these banks engaging in dodgy accounting, malpractice or becoming insolvent, one would be an unsecured creditor of one or all of the many custodians and sub custodians who are primarily banks.

In the event of a Lehman Brothers style systemic crisis, there is the risk that your bullion would be subject to a “bail-in” or could be nationalised by an insolvent sovereign nation.